Organising – Class 12 Business Studies notes, important questions and MCQs

Chapter overview

Organising is the process of identifying and grouping activities, assigning duties, delegating authority and establishing relationships so that people work together effectively to achieve goals. It creates the organisation structure, which may be functional or divisional. Organising also involves formal and informal organisation, delegation of authority and decentralisation.

Process and importance

• Steps: identification and division of work, departmentalisation, assignment of duties, and establishing reporting relationships.
• Importance: benefits of specialisation, clarity in working relationships, optimum use of resources, adaptation to change, effective administration, development of personnel and expansion and growth.

Organisation structure

• Functional structure groups jobs by functions such as production, marketing and finance; it promotes specialisation but may create conflicts between departments; suitable for single-product firms.
• Divisional structure groups activities by products or regions, each division having its own functions; it gives accountability and flexibility but involves duplication of resources; suitable for diversified firms.
• Formal organisation is the deliberately designed structure of authority; informal organisation is the network of social relationships that arise from interaction among people.

Delegation and decentralisation

• Delegation is the downward transfer of authority from a superior to a subordinate; its elements are authority, responsibility and accountability.
• Authority can be delegated, responsibility is assumed, and accountability cannot be delegated; authority should be equal to responsibility.
• Decentralisation is the systematic delegation of authority throughout all levels; it develops initiative, managerial talent, quick decisions and relieves top management.

Key terms

Organising

identifying, grouping and assigning activities and establishing authority relationships

Functional structure

an organisation structure grouping activities by major functions

Divisional structure

an organisation structure grouping activities by products or regions

Delegation

the transfer of authority from a superior to a subordinate

Accountability

the answerability of a subordinate for the outcome of assigned work, which cannot be delegated

Important questions with answers

Quick revision

• Process: identify work, departmentalise, assign duties, establish relationships.
• Functional vs divisional structure.
• Formal vs informal organisation.
• Delegation: authority, responsibility, accountability; decentralisation.

Exam tips

• Draw simple charts of functional and divisional structures.
• Remember: authority flows downward, accountability flows upward and cannot be delegated.

Practice MCQs

1. Grouping activities by functions such as production and marketing creates a

   1. divisional structure
   2. informal organisation
   3. functional structure
   4. matrix only
   Show answer

   Answer: (c) functional structure. It suits single-product firms.

2. The transfer of authority from a superior to a subordinate is

   1. centralisation
   2. delegation
   3. coordination
   4. control
   Show answer

   Answer: (b) delegation. Authority flows downward.

3. The network of social relationships at work is the

   1. formal organisation
   2. informal organisation
   3. divisional structure
   4. policy
   Show answer

   Answer: (b) informal organisation. It arises naturally.

4. Which element of delegation cannot be delegated

   1. accountability
   2. responsibility
   3. authority
   4. work
   Show answer

   Answer: (a) accountability. The superior remains answerable.

5. A company making cosmetics, garments and food items is best suited to a

   1. divisional structure
   2. functional structure
   3. no structure
   4. informal structure
   Show answer

   Answer: (a) divisional structure. Each product line needs its own division.

6. Systematic delegation of authority to all levels is

   1. decentralisation
   2. centralisation
   3. departmentalisation
   4. coordination
   Show answer

   Answer: (a) decentralisation. It is an organisational philosophy.

7. A limitation of the functional structure is that

   1. it gives specialisation
   2. it reduces duplication
   3. it may lead to conflict between departments and less focus on overall objectives
   4. it improves coordination
   Show answer

   Answer: (c) it may lead to conflict between departments and less focus on overall objectives. Departments focus on their own goals.

8. Which statement about delegation is correct

   1. authority is delegated, responsibility is assumed, accountability cannot be delegated
   2. responsibility is delegated, authority is assumed
   3. accountability flows downward
   4. authority need not match responsibility
   Show answer

   Answer: (a) authority is delegated, responsibility is assumed, accountability cannot be delegated. This is the principle of delegation.